Doing the student loan shuffle

Federal loans also are easier to find because they carry fewer risks for lenders. Unlike private loans, federal loans are backed by the U.S. Treasury, making them guaranteed safe investments for lenders who can front the cash. Although a number of smaller nonbank lenders have pulled out of offering federal loans due to problems coming up with the upfront capital, recent legislation allows lenders to sell loans to the U.S. government.

"Instead of using the capital market to raise funds to make new loans, lenders can now sell them to the government and proceeds from that sale would go to fund new loans for the upcoming year," says Casillas.

This program – originally intended to expire in 2009 -- has been extended for another year in an effort to keep larger federal loan lenders in the student loan game until the capital markets turn around.

With an increasing number of lenders folding, students who attend so-called Federal Family Education Loan, or FFEL, program schools -- institutions that direct students to outside lenders for their federal loans -- may have to switch lenders in the upcoming 2009-2010 year.

However, Delisle says families who do their homework and hunt around for a lender should be able to secure a federal loan.

"There are a lot fewer lenders out there who will make student loans," Delisle says. "But we don't know of any single case where a student has not been able to get their federally subsidized student loan," Delisle says.

Students who attend direct lending institutions, where funding comes directly from the government and the school acts as the loan originator, won't be affected at all.

No matter where they attend, students relying on federal student loans in the upcoming school year should check with their financial aid officers to make sure their money will keep coming through.

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Stafford loan limits have risen

The option that will impact the most students is increased Stafford loan limits. Starting last school year, students who qualified for Stafford loans were eligible for $2,000 more per year than they were in years past. That means dependent freshmen are eligible for $5,500 ($7,500 for independent students), $6,500 for dependent sophomores ($10,500 for independents), and $7,500 for juniors and above ($12,500 for independents).

ECASLA also raised the lifetime Stafford loan limit to $31,000 for a dependent undergrad ($57,500 for an independent undergrad) and left the limit at $138,500 for a graduate or professional degree student, all at a 6.8 percent interest rate -- significantly lower than the 12 percent to 14 percent rate many private lenders charge.

Some fall through cracks

Even with the new aid increases, Robert Shireman, former executive director of the Project on Student Debt, now the deputy under secretary for postsecondary education for the Obama administration, says that some students -- namely those with high tuition bills and bad credit history -- will still fall through the cracks as private lenders back out of offering alternative loans.

"There will probably be some students who have tapped out their Stafford loan eligibility and who can't convince their parents to take out a PLUS loan," Shireman says. "If they need more money beyond the Stafford limits and they can't find a good co-signer, that situation would be difficult."

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